Washington Court of Appeals affirms dismissal of Seattle’s “Jump Start” payroll tax lawsuit

A Washington Court of Appeals upheld the King County Superior Court’s dismissal of a lawsuit brought by the Greater Seattle of Chamber of Commerce that contested the constitutionality of a payroll expense tax.

In June, King County Superior Court judge Mary Roberts ruled that a payroll tax that applies to businesses that spend $7 million or more on payroll in Seattle is “constitutionally permissible.”

The judgement came after the Greater Seattle Chamber of Commerce contested the constitutionality of the tax which was passed by the City Council with a vote of 7-2 last summer on July 6.

According to court documents, the chamber contended that the tax is a tax on “employers’ payment of compensation to employees,” making it “constitutionally impermissible tax on an employee’s act of earning a living.”

However, the judgment stated, “…the tax is levied on the business entity, not the employee; taxpayers ‘may not make any deductions from the employees’ compensation to pay’ for the tax.”

“The city has authority to tax all business activities in the city. The payroll expense tax is an excise tax measured by payroll expenses and paid by businesses that engage in business with employees in the city,” court documents stated in part.

The payroll tax plan called JumpStart Seattle was introduced by Councilmember Teresa Mosqueda.

“I am glad to have this frivolous challenge behind us, since the reality is the opponents say they want the same investments JumpStart will fund: more affordable housing, pathways out of homelessness, and economic resilience for our local economy,” Mosqueda said in a release. “We now have the assurance that this progressive revenue stream is coming as we seek to respond to the crises worsened by COVID-19.”

Amazon and other businesses with annual payrolls of at least $7 million would pay a tax for each employee with a salary of $150,000.

The tax rate would go up when companies pay workers more than $500,000, or for companies with Seattle payrolls greater than $1 billion.

“We can jump start our economy and do it in an equitable and inclusive way,” Mosqueda previously said.

Mosqueda insisted that she was not targeting Amazon.

“This is not about one company,” she said. “This is not about one targeted effort, this is about a universal approach to really invest in our local economy.”

About two weeks after the tax passed, then-Seattle Mayor Jenny Durkan refused to sign the tax bill but she did not veto it either.

In a letter to the city clerk, Durkan wrote the bill will likely have an opposite result in terms of increasing revenue for the city, as it will average $2,700 per job.

Durkan also stated that the city will need additional “progressive revenues” to overcome these unusual times and that the city needs to move away from a “regressive tax system to one that is more progressive.”